Previously, we have done comparisons on mobile account opening and the design of these offerings as it relates to incumbents vs. FinTechs, so we thought it only fair to do a more detailed comparison based on product offerings and where the industry is headed. While you can call our design evaluation subjective, our side by side product and feature comparison demonstrates how the large incumbents serve a stronger set of offerings to a broader base of investors, but at the expense of simplicity. While the FinTechs have limited offering but a more honed feature set.

Set-It-And-Forget-It

Pretty much everyone is working on some form of a robo, and many have already started their own. In fact, due to competition for passive investors from low fee, automated investing startups like Wealthfront and Betterment, incumbents (Schwab, Fidelity, E*TRADE, TD Ameritrade) were quick to roll out at least one automated investing account and many now offer more than one option.

The start-ups are forcing banks and brokers to adopt technology faster than ever before, while the established players are pushing the robos to incorporate more traditional services in their products. In fact, many of the digital-only startups are layering in human advice to complement their automated offerings. This should give pause to any incumbent, or at the very least, make them rethink their features and user experience.

Robinhood, which earlier this year added crypto trading, only offers this feature in select states. Square added crypto trading to their Cash app in late January, with Square Cash averaging 2M downloads per month, 3x the growth rate of Venmo. Coinbase surpassed Charles Schwab in the number of open accounts in late 2017 (11.7M vs. 10.6M), but the value of those accounts is still a fraction of the value of Schwab ($50B vs. $3.26T)

While all of the challengers in the investing space have well-defined customer journeys and easy to use interfaces, there’s still a large difference in the breadth of the offering. Customers with specialized needs (securities lending, bonds, futures, trust capabilities, advanced options tools) will probably be better served by more established players. While customers seeking to simply capture market returns with excess cash will probably enjoy the better digital experience and onboarding provided by the newer players in retail brokerage.

What interests us is how both facets are pushing the others to be better. FinTech is pushing the incumbents to simplify, while the incumbents are pushing fintech to be more than just a pretty interface. But the question is, will anyone become the Amazon of investing? Will anyone ever have everything for everyone? And what will that look like? Time will certainly tell.

More and more APIs are being adopted across all industries—travel (Google Maps), food/entertainment (OpenTable, Spotify), communication (What’sApp, Messenger, WeChat). Companies like Button are partnering with brands to help distribute their offerings to a large developer community and that are eager to strengthen their mobile experience via the use of APIs. APIs, to these organizations, equal opportunity, and access.

However, when looking at the Finance industry, banks and brokerages are lagging behind in API adoption. Screen-scraping—which we’ve written about numerous times—doesn’t allow for reliable data connections to banks and is a huge security risk. However, screenscrapers are widely used and via the halo effect, end users are tricked into submitting their information that results in loss of control over their own data. All of that can be alleviated with the adoption of APIs which use information in a more effective and efficient way. APIs still allow data sharing but in a way that creates a safe, seamless experience for both users and creators.

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In our previous post we touched on the potential of an ETF bubble. The exponential growth of ETFs, especially from younger investors who want to set-it-and-forget-it, means there’s an opportunity for providers to increasingly use Artificial Intelligence in smart alpha and active products. But what can AI do for your business and investment strategy?

Like Humans, Only Better, Faster, Smarter

AI tools can intake data, learn from it, and act on it to meet specific objectives. But they can do it more quickly and efficiently. In fact, machines running AI algorithms can process large amounts of data in the blink of an eye. Market data is dynamic. Machines can react instantly to fluctuations to best identify ideal investment strategies. They can also read through thousands of pages of market reports in seconds, while simultaneously connecting new market signals with recent ones detected in other markets. It would take a fund manager hours to do the same thing a machine can do in split seconds.

AI Has No Ego or Emotion

Investors tend to make poor decisions because it’s their money they could lose. Money is emotional. But machines don’t get stressed, tired, or angry. There’s no winning or losing. They operate in a purely logical manner and make decisions based only on evidence and indicators. When you remove emotion from the equation, you make better decisions. There’s no holding onto a position because you think it might change. There’s only analyzing the facts and deciding based on what is happening, not what might happen.

IBM’s open APIs and developer-friendly portals charge per API call once a product is live. This sort of scalability makes AI accessible to anyone, regardless of size or motivation. And, as you can see from the below chart, ETF providers who aren’t taking advantage of AI are losing out on revenue.

Since AI doesn’t need to sleep, it can be working 24/7, even when the markets are closed, trying strategies that might be difficult to execute for traders. And because of the amount of data available, risk is mitigated because AI will know when to get out before it’s too late. An AI system can make daily stock recommendations that the ETF manager can then use to shift positions, increasing alpha.

Compete or Go Home

An important aspect of any AI strategy is partnering with external developers. Because, in order to compete with the top financial firms in your sector, you need to leverage machine learning or risk being left behind. In fact, you might already be.

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“From the industry perspective, what’s brilliant about ETFs are they have the ability to work well under pressure. Any time we’ve seen dips or a bear market, we’ve seen ETFs be a good haven because all you’re doing is going to a different side of a trade.” – Global Asset Manager with >$1T AUM

The appeal of ETFs to investors is diversification. The ETF surge represents a shifting investment ecosystem away from active, toward passive. According to a Charles Schwab 2017 ETF Investor Survey, the percentage of ETF investors by demographic is as follows: 56% of Millennials, 44% of Gen X and 30% of Boomers. In fact, an astounding 96% of millennials see ETFs as a necessary part of their investment strategy, perhaps because they have less money available to invest.

Our current financial system is geared towards a much lower average life expectancy. Yet, as people live longer, their portfolios need more durability. So what is the liquidity of ETFs and the ability for ETF companies to unwind when, for example, a boomer needs to start drawing down? Or, what happens during a crunch?

Facing Liquidity

“I’m not worried about ETF liquidity. There’s always fear of that but I don’t think there’s suddenly going to be a liquidity drought in asset classes. It’s really at the very back of our heads.” – Large Pension Fund

Cash inflows to an ETF that has large holdings of a specific company could misprice a company blindly. “In the largest products, where most of the money sits, about 90% of trading that occurs is in the secondary market, according to Vanguard’s research. That means ETF investors are passing investments between themselves, and not having to transact with fund managers.”

Another reason for concern, a July report from Cirrus Research cites that, “companies with higher ETF exposure have steadily underperformed their counterparts since last June.” While the rise of robo advisors reflects this changing paradigm, a lack of understanding drives ETF demand and introduces risks. And it shows no signs of slowing down with 61% of millennials planning to increase their ETF positions. So while wealth managers used to be too expensive for the masses, automation is changing that and ETFs are democratizing the investment world.

ETFs played a role in the sell-off in 2015:

According to SEC, exchange-traded products experienced higher volume and volatility than standard stocks

Swings in price seemed arbitrary among otherwise similar ETFs

Many of the shares owned by investors were dealt by short sellers (unbeknownst to the investors)

As investors realize they own ‘synthetic’ ETF shares, the situation could explode

Before the Burst

Banks and trading firms happily sell and trade ETFs when the market is calm. When they can buy at a discount and sell at a premium, these firms will continue to offer ETFs in large quantity. But when that is no longer a probability or possibility, the suppliers of ETFs will most likely disappear, essentially undoing the entire system. But there are ways to fix the bubble.

‘Physical’ ETFs have much lower risk because they are actually hard backed by the underlying security. Diversifying with equities that aren’t usually tracked by ETFs can help avoid market cap bias.

How Close is the Burst?

Millennials are pouring their investment dollars into ETFs. They’re also the target of many of the robo advisors and FinTech’s helping investors begin to grow their wealth. Many of these robos and “set-it-and-forget-it” FinTechs are leveraging ETFs in their portfolios due to the lower price point, dollar-based investing, etc.

That said, could the potential burst or liquidity crunch be stalled due to the influx of Millennials investing in ETFs? Or is that a temporary distraction? Will the robos and FInTechs potentially suffer the same fate?

Case in point: look what happened to some of the robos that got squeezed during Brexit as people demanded access to their funds. Will this instance be a case of only time will tell, or are these brakes on their potential roller coaster?

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“To design is much more than simply to assemble, to order, or even to edit: it is to add value and meaning, to illuminate, to simplify, to clarify, to modify, to dignify, to dramatize, to persuade, and perhaps even to amuse. To design is to transform prose into poetry.” –Paul Rand

We know what you might be thinking. Why is a FinTech company talking about design? Think about it. We all have products or services to offer. Shouldn’t the way we present those offerings be the cleanest, most intuitive and simplest to use? After all, the barrier to entry can take many forms and design or user-experience is certainly a big one.

It’s more than this interface is ugly and this one is clean. It’s about creating the easiest experience for the user. One that allows them to sign up in a few steps and of course then is a no-brainer for continued use. In today’s day and age, the mobile experience is paramount.

We took a look at the customer experience of several Financial incumbents and some FinTechs to see how they compared. This includes things like interface density: color, fonts, spacing, as well as more quantifiable data—steps to sign-up and log-in, overall app navigation and ease of usage.

Author’s note: In our review of incumbents and fintechs, we have attempted to assess the user interaction and experience with quantifiable data points to try to eliminate subjective opinion. If you believe that beauty is truly in the eye of the beholder, we’ve tried to focus on objective learnings vs subjective opinion.

Clutter vs. Clarity

The incumbents seem to have taken their web experience and tried to leverage those existing workflows into mobile. The screens are dense with information with a less intuitive path to entry, a plane can only land on one runway. In fact, on the sign-in screen, users are given quotes, research, accounts, trades and more. There are in some cases, 60, yes, 60(!), fields or upwards of 10 steps to complete in order to sign up. Some even suggest a 10 minutes process and then tell you it takes 2 days, yes days, to hear back. Who is going to do all that on mobile?

Meanwhile, many FinTechs were mobile first, starting from the ground up, which allows them to simplify and convey the one thing they want the user to do: sign up, log in and start immediately using the tool. There is nothing distracting them from that goal and it’s literally the only thing they can do on that screen. No distractions. No extra steps. Just sign up or log in. All of these offer 12 screens (some which are inaction screens) to sign up. That’s under 5 minutes. No waiting period. Mission accomplished.

Incumbents Still Winning…for Now:

While incumbent apps are rated well and—as of now—preferred by experienced traders or those who have broader active investing needs, this rating likely has more to do with the rich legacy features that older generations of investors rely on.In other words, rich features and lack of head-on competition from Fintech apps that aren’t competing to the same level of investors and for the same features are the reason they are being more utilized. An example of this would be a plethora of research and charting tools as found on Etrade but not on RobinHood, something an experienced, active trader leverages to make decisions.

Let’s compare:

Here how Robinhood and Etrade both show AAPL as a quote page. There are two distinct approaches being utilized and it’s clear the apps cater to two types of investors. Etrade is info-rich, providing more information for trading decisions. For a newer investor, this might be more content than is needed. But for an experienced trader, this is what they’re used to seeing.

Robinhood, on the other hand, offers a slicker and cleaner interface. Robinhood presents users with one aspect of the stock and directs them to exactly what they want them to see. For a newer investor, this is likely all they need and doesn’t overwhelm with excess complexity.

Understand the Trends

Fintech apps have mainly been focusing on a large pool of inexperienced or young investors, or those that want to take generally a passive role in the investment markets. As we mentioned, Robinhood—the only FinTech broker competing for active trading—is still lacking in basic Incumbent features such research reports and stock screeners for idea generation. However, each segment has something different to offer:

Incumbents

Audience: Experienced investors/traders

Sign up process: Lengthy and information-rich

Ease of use: High learning curve

UI and UX patterns: Complex

Capabilities: Feature-rich

FinTech

Audience: Young investors/traders

Sign up process: Straightforward and short

Ease of use: Shallow learning curve

UI and UX patterns: Simple and modern

Capabilities: Limited focus

What the Future Holds

For now, FinTech apps aren’t a threat to Incumbents for serious traders. However, that doesn’t mean Incumbents should rest on their laurels and accept their outdated and clunky app experience. Given a bit more time, FinTech players could, and likely will, gain ground on new waves of investors. Since Incumbents have been really slow to adopt in focusing on the end-user through better UX, FinTechs are picking up Millennials that have grown up using Facebook, Google, Uber and other services that established high standards for their experiences. These are apps that offer low learning curves, simple entry, and minimalistic user interfaces. And they are what the people want. So, it’s only a matter of time before user experience trumps experienced.

We’ve done a lot of talking lately about open data and why it’s so important for consumers and businesses. This ranges from allowing for increased innovation to the importance of APIs. Let’s dissect what this announcement doesn’t say:

The sale of this data is one of the big areas of interest among hedge funds. Many are interested in non-traditional data sets, and consumer portfolios/activity is one of those data sets that’s viewed as interesting data to hedge funds. With all the money available for data, it’s hard to believe they are going to leave those chips on the table and walk away.

Essentially, there’s not much here. There’s no clear benefit to the investor and the protection of their data and there’s no clear benefit in terms of security.

APIs are the big missing piece in all of this and what’s really needed above and beyond these “made up” frameworks. APIs give everyone more control, allowing FIs to benefit the users and truly keep their information secure and protected.

In Europe, the Europeans believe they own their own data, but that’s not true in the US. This is the mind shift that needs to happen to give people more control of their data and in turn, their privacy. No acronyms needed.

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FIs spend most of their marketing dollars on account acquisition. In fact, in 2017, the US financial services industry will have spent $10.1 billion on digital advertising, a 13.1% gain from 2016, according to eMarketer.But for all this spend there’s been almost no innovation in this space. And that lack of innovation is losing customers and costing FIs millions. It’s time that FI’s begin to ask:

Is there a better model?

How can the account opening process be improved upon for an easier flow for the end user?

In a previous post, TradeIt conducted time trials to open a new brokerage account on mobile. Completion of those applications ranged from 6 to a staggering 12 minutes. So what were the pain points and causes of abandonment?

Too complex

Too many steps

Took too long

Required information not readily available

The biggest challenge in a mobile age is that none of the account opening processes are “native to iOS” (or Android) and all require users to go to a responsive web application that’s driven from the 20-year old Affiliate link model that was designed for desktop. So, with each additional minute and extra field to complete, or with clunky mobile interfaces, the number of completed applications falls significantly. There goes your sales funnel…and your profits.

At the Benzinga Global FinTech Awards last week, the big brokers spoke about the need for innovation. TD Ameritrade cited:

40% of their trading is happening on mobile

They are doing 250,000 trades/day

The brokers on the panel—which included TD Ameritrade, Schwab, Interactive Brokers and TradeStation—agreed that constant innovation was a necessity in an age when retail brokers interfaces are being compared to Amazon and Google for being clean, easy and intuitive. As we highlighted in a post last year, 72% of millennials would rather bank with Google, Facebook or Amazon than their existing financial institution. The mobile experience is key to this and easy interfaces are what will get them to visit and stick around.

Quick and Easy

What Robinhood, Acorns, and Stash get right with their native/mobile-enabled tools is to allow users to open an account in under 5 minutes. Why? Because those tools were built from the ground up with mobile—and the end user—in mind. They know what’s important when looking at customer acquisition and creating that experience:

Hone: Get the message right

Streamline the process: avoid pitfalls that will cause potential clients to abandon the flow

Focus: Only include the must-have know-your-customer components

Make it native: If you do one thing and one thing only, make it native

We’re going to talk about screen-scraping again. Because we think it’s so important to be aware of what this means for both consumers and FI’s. You can get more background on the process of screen-scraping and what it means for the future of banking as well as the importance of API’s and innovation in our previous posts here, here and here.

One of the ways screen-scrapers are getting access to customer data is through a halo effect.

Screen-scrapers are using logos to build trust and credibility and then turning around and selling the data they’ve so trustfully obtained. By using the logos and trademarks from financial institutions, it engenders trust among the end users who associate the brand of Broker X with their money and the security that their financial institution provides. However, most FIs have not in fact granted permission or rights to the screen-scraper for them to use the logos in the first place. The trust of the logo makes an association for the end user, but this is an abuse of the institution’s mark and negatively impacts the end user and the institution itself.

The Anti Trust

Let’s be honest, most Americans aren’t enamored with big banks or financial institutions these days. However, seeing a logo of a familiar name in one of their finance apps will undoubtedly create a feeling of assurance that things are on the up and up; that their information is safe. As an end user, we’re putting our faith and trust in the visual association of the broker or bank brand on a third party site. And in this case, that trust is unfounded.

I Didn’t Sign Up for This

When this logo appears, it signals to the end user a perception of the financial institution’s endorsement of the technology, thus they willingly link their account. As we’ve argued in previous posts, the screen-scraper can then go in and grab their data — any of their data — and use it and sell it. These companies are selling that data many times over, charging their partners per linked user. But where’s the end user’s cut of the profit? And how many places are they selling it to?

Millions of Customers + 1000s of Companies = Millions of Screens Scraped and Countless Data Points Up for Grabs

An Ounce of Prevention

Luckily, all is not lost. Companies like Fidelity and Ally are ensuring their information is secure and are increasingly moving towards APIs for third parties to access their clients’ data. In fact, TradeIt’s SDK specifically helps partners integrate our technology, allowing their developers to integrate faster with simple customizations. This ensures the end user that they’re protected and gives them total control over what happens to their data. By partnering with brokers to access their APIs, TradeIt only accesses the information that the broker makes available.

Here’s how it works:

Through a broker’s API, we allow the end user to log into their brokerage account securely.

We don’t view, access or retain their log-in credentials.

After the user consents, the broker provides an encrypted token.

This token will expire, and once it does, the connection is severed.

In order to continue to view their portfolio and/or send buy or sell orders from their favorite app to their broker, the end user will need to relink their account.

Safety First

How this differs from traditional screen-scraping is simple: we don’t retain log-in credentials and continue to access and scrape the end user’s data however we see fit. Their information is not available to us. Nor should it be. Not only is this safer in the event of a data breach, it provides true trust with the end user. We only show the logos of brokers with their permission.

But, as we move into more transparency around banking, brokers are embracing this change. TradeIt has consent pages and end-user agreements that explicitly inform the investor that we’re accessing their data on their behalf. It’s more than just a logo, its an agreement between the broker and the third party. This puts the end user at the forefront, not on the backburner. Which is where they should be in the first place. After all, it’s their information.

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Whoever said ignorance is bliss obviously never unknowingly shared all their data. As we mentioned in a previous post, consumer data is being screen-scraped into the ether and this creates so many issues around control and the assumption of privacy. Once your data is scraped, it’s gone. Neither the bank or institution, nor the end user has any control.

It’s all a question of control. And APIs are the answer. They offer banks and FIs the ability to control what pieces of data and how much are grabbed by a permitted 3rd party. For example, at TradeIt—from some of our brokers’ API—we see only seven days of transaction history, while others might show 30 days. Typically no one provides more than 90 days but the depth of history varies. In addition, for things like an order blotter, some brokers only provide the current days’ orders. These smaller pieces of data ensure less is shared, though what is shared is timely and relevant.

You Get My Data and You Get My Data, Everybody Gets My Data

With screen-scraping, once you provide your ID and password to the 3rd party, their bots do the scraping and can grab anything that’s available, including your transaction history and all of your accounts under that single login. For some banks or brokers—if the broker is part of a larger financial institution that offers a diverse product set—that could be your brokerage account, retirement account, mortgage, even credit card information. Most end users likely don’t realize that once they give the screen-scraper their login, they have it, and they can and will use it until the password is changed. What’s worse most of the screen scrapers don’t have trademark rights to the logos that are on their service integrations, therefore falsely leading the consumer to believe the institution approves it. In the meantime, they’ve still grabbed that data and it’s gone…to who knows where.

Not only do APIs offer a more tailored solution where you essentially get only what you need, they create a huge potential for innovation. As we demonstrated in a previous post about your data being open for business, companies like Fidelity are already showing consumers who has access to their data and allowing them to control whether or not that’s ok with them.

In Tech We Trust

Brokers need to push themselves to invest in APIs. Ever since the invention of the FDIC, FIs have been associated with trust as it relates to consumer’s money. The theory with bank robbery was that they aren’t hurting anyone since the money is insured. Except now with screen-scraping, we are getting hurt…with our privacy…or lack thereof.

As technology evolves and allows for endless possibilities, investing in methods to engender trust and yet that also support the new ways individuals want to interact with their money, track their wealth and/or use tools for better financial decisions, is vital. Brokers and FIs need to enable that, to securely open their data with controls to prevent misuse or even breaches. This is what will create real trust with their users.

Don’t Build a Wall

Firewalls and detours aren’t the answer. It’s not about closing things off, it’s about opening them up. With the new sharing ecosystem, and with millennials having more trust and more interest in tech-driven brands, FIs need to work to remain relevant. In order to do this, you need to be an active member of the ecosystem and invest in technology that supports these behaviors.

Because, while users may be content to share some of their personal info in order to use your service now, it’s only a matter of time before they realize just how much and possibly decide it’s not worth it.

Are they really getting what they signed up for, or worse, paid for? You need to provide comfort and control to your user. If you don’t, they won’t tick that agreement box and they’ll move on to someone who can.

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Millions of eager MBAs populate the executive suites and boardrooms of top companies around the globe, and the vast majority were indoctrinated in strategy classes with Michael Porter’s Five Forces and value chain analysis. These value chains have served corporations as they examine vertical integrations, mergers & acquisitions and the strategic fit of business lines since the Industrial Revolution.

Example: Linear value-chain which offers one direction for business flow only.

This traditional model is no longer useful or practical and the technology revolution of the last 30 years is forcing companies to re-evaluate linear value chain analysis in favor of a “constellation” approach to building businesses.Example: Constellation approach using TradeIt to showcase the potential of a living breathing value ecosystem that flows to all entities.

As we see in the TradeIt model, the relationship between buyers and suppliers now features a “big bang” view of the ecosystem—partners that support each other and need each other to grow, branching off in every direction.

So why is this beneficial?

The TradeIt model would not be possible without APIs. APIs allow companies to securely work with each other through technical channels in order to focus, build and scale without the same linear approach as historically conceived. But we’re getting ahead of ourselves. First, a refresher…

Essentially Porter built a framework for understanding competitive forces in an industry and how those drive economic value among the industry players. Today we’re still trying to understand how to drive value, but what’s clear is that it’s no longer through a linear value chain. Instead, we drive value through a platform model where you have contributors owning different pieces, therefore making the sum of the parts greater.

APIs are revolutionizing traditional business alliances and partnerships through scalability, flexibility, and fluidity.1

When companies share APIs, the world expands. Uber relies on Braintree for payments, Google integrates Uber into its map feature, and the list of interdependent API-driven technology businesses becomes more and more apparent.

Similar to the relationships between Uber, Google and Braintree—which are all focused on delivering a service to an end user—in finance, Cross River Bank allows companies like Affirm, TransferWise, and others to be free to build client-facing tools and services without having to do the core banking functions that often slow large incumbents. The ‘big bang’ approach to an ecosystem allows innovative service providers to enter a space with one “killer app” or a new tactic to solve a pain point.

Power in Partnerships

Large incumbents, where all the technology and related services are all under one roof, may not be able to move as quickly due to silos, legacy systems and/or risk and compliance requirements. The keys to this new value chain approach and the ecosystem are the partnerships and the ability to work together in new and innovative ways to meet the end user’s needs.

The visual below shows how TradeIt acts as a hub between supply and demand (brokers vs publishers) and how other partners come into the equation with ancillary and related services.

This type of model not only offers much more flexibility for other players, it also opens the door for additional revenue streams and increased profitability. By creating value at every touchpoint, from broker to publisher and supplier to distributor, the ecosystem will only continue to expand and grow…to the benefit of everyone.